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Hawtreyan Credit Deadlock or Keynesian Liquidity Trap? Lessons for Japan from the Great Depression

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  • Roger Sandilands

    ()
    (Department of Economics, University of Strathclyde)

Abstract

This paper outlines the ideas of Ralph Hawtrey and Lauchlin Currie on the need for monetised fiscal deficit spending in 1930s USA to combat the deep depression into which the economy had been allowed to sink. In such exceptional circumstances of “credit deadlock†in which banks were afraid to lend and households and business afraid to borrow, the deadlock could best be broken through the spending of new money into circulation via large fiscal deficits. This complementarity of fiscal and monetary policy was shown to be essential, and as such indicates the potential power of monetary policy – in contrast to the Keynesian “liquidity trap†view that it is powerless This lesson was not learned by the Japanese authorities in their response to the asset price collapse of 1991-92, resulting in a lost decade as ballooning fiscal deficits were neutralised throughout the 1990s by unhelpfully tight monetary policy with the Bank of Japan refusing to monetise the deficits.

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Bibliographic Info

Paper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 0904.

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Length: 48 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:str:wpaper:0904

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Keywords: Great Depression; Japan’s Great Stagnation; Hawtreyan Credit deadlock; Keynesian Liquidity trap;

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  1. Mauro Boianovsky, 2004. "The IS-LM Model and the Liquidity Trap Concept: From Hicks to Krugman," History of Political Economy, Duke University Press, vol. 36(5), pages 92-126, Supplemen.
  2. Mauro Boianovsky, 2003. "The IS-LM Model and the Liquidity Trap Concept: from Hicks to Krugman," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] a13, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
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  1. Optimum Taxation Policy and the Impact of Public Debt Under Modern Monetary Theory
    by andrew lainton in Decisions, Decisions, Decisions on 2013-04-26 09:29:27
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Cited by:
  1. K. Vela Velupillai, 2010. "The 'Minsky Moment' - A Critique and a Re-construction," ASSRU Discussion Papers 1009, ASSRU - Algorithmic Social Science Research Unit.

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